Are ASIC’s Product Intervention Measures in Australia’s Best Interest?

The CEO of Pepperstone has questioned whether ASIC is using its powers appropriately.

Following in the footsteps of ESMA, the Australian financial regulator, the Australian Securities and Investments Commission (ASIC), is planning on adding restrictions on CFD trading and completely banning binary options. While the latter is no surprise, are ASIC’s measures regarding CFD’s in the country’s best interest?

In a letter made to the Australian government’s Select Committee on Financial Technology and Regulatory Technology, Pepperstone, a foreign exchange (forex) broker, has argued that perhaps this is not the case.

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In particular, the Chief Executive Officer (CEO) of the Aussie broker, Tamas Szabo, said in its submission to the committee that it is worried that Australia is moving away from its key advantage which is “a principles-based regulatory environment that is flexible, stable and supporting of innovation.”

ASIC measures will make Australia less attractive

In particular, Szabo highlights that the ASIC’s product intervention measures are likely to have a “material impact on Australia being a jurisdiction of choice for innovative products.” He also outlines that the measures appear to be at odds with their initial intention.

Tamas Szabo, Group CEO of Pepperstone
Tamas Szabo, Group CEO of Pepperstone
Source: LinkedIn

Namely, when the product intervention measures were first being considered by the Financial Systems Inquiry (“FSI”) back in 2014, the authority said the measures should be used as a last resort. Moreover, the FSI said that: “If the power is used effectively, it should not significantly affect innovation.” 

However, Pepperstone’s CEO suggests there is some evidence that ASIC has not been meeting these requirements since inheriting its product intervention powers.

This includes the regulator using the power to recommend eight major aspects of law reform to the CFD and forex industry, using the powers before considering the design and distribution obligations, and the watchdog considering to use the powers more frequently rather than allowing current regulatory requirements to stand.

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“No financial services firm, particularly a FinTech firm, can operate in a regulatory environment that may change materially in unexpected ways. This is especially harmful when the regulatory intervention impacts the core features of the products that can be offered to investors.”

ASIC needs to be more careful

Pepperstone isn’t alone in thinking that ASIC’s regulations have the potential to hurt Australia’s financial industry and stifle innovation. Speaking to Finance Magnates, Sophie Gerber, a Director at Sophie Grace and TRAction Fintech stated that the regulator’s proposed measures could harm innovation in the country.

Sophie Gerber of Sophie Grace and TRAction Fintech
Sophie Gerber, a Director at Sophie Grace and TRAction Fintech

“I definitely think that the points that Pepperstone have made have validity,” Gerber said. “I think for the long term the respectability of ASIC as a regulator and Australia as a desirable country, they need to exercise circumspection in the way they use their powers because if they are perceived as using it in a harsh and arbitrary manner I think it has the potential to really damage innovation and willingness to set up business in Australia for Australians and foreigners.”

Furthermore, Gerber argues that ASIC is focusing on the wrong issues, and believes leverage is very unlikely to be the enemy the watchdog seems to believe.

“I don’t agree with ASIC’s use of power at this stage. ASIC and the Australian government need to be careful what overall this power means for Australia and for the Australian financial markets. I don’t see a justification at this stage for the measures to be harsher than ESMA. My observation is that there are powers and tools available to ASIC to address some of the underlying issues in the market without the use of this product intervention.

“I don’t think the underlying issue is leverage, I think the underlying issue is businesses operating outside of the current regime (unlicensed or incorrectly licensed, inappropriate sales practices, conflicted remuneration to name a few) and not being stopped or punished.”

Pepperstone’s recommendations

In the submission, Szabo also provides recommendations on how Australia can remain competitive and have a thriving financial technology industry. Specifically, he recommends that:

  • regulators must take care to ensure that regulatory intervention does not impact innovation or unnecessarily restrict the products that can be offered in Australia without good reason;
  • product intervention measures should be taken as a ‘last resort’ and only used in the most serious of cases once all other avenues of enforcement have been exhausted; and;
  • the Government and regulators should actively work towards establishing regulatory certainty, which will allow firms to innovate in an environment where they know the established boundaries and have comfort that those will not change unexpectedly. 

When Finance Magnates reached out to the broker, Pepperstone declined to provide further comments.

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